Offshore Wind Journal

France faces lost decade as Rameix review homes in on costs

The review of subsidies awarded to early projects could affect investor confidence, deal a blow to renewable energy plans and affect manufacturers

France wanted to be a world leader in offshore wind but its industry has been thrown into turmoil because long-delayed projects are now deemed too expensive

The French offshore wind industry faced an anxious few months as of early May 2018 as talks commenced between the developers of Round 1 and 2 offshore windfarms and the government over the level of subsidy they should receive.

The decision by the government to renegotiate the tenders followed criticism of the level of subsidies from the French energy regulator, CRE, and could have wide-ranging ramifications for the country’s renewable energy industry.

If the negotiations go well and projects remain on track, albeit with a lower level of subsidy, France’s ambition to build a world-leading offshore wind sector and benefit from fast-growing export markets could remain achievable; if the negotiations do not go well, and projects are cancelled, or developers are forced to pull out, the industry faces a ‘lost decade’ and could lose advantages it once held. Until the results of the renegotiation become clear, only the floating wind sector – in which the country is also heavily investing – is immune to the fallout from the government’s about-face.

Talks with the developers are being led by the former president of the Autorité des Marchés Financiers (AMF), Gérard Rameix, and were expected to start in early May and be completed by July. Should reductions in the level of tariffs awarded to the projects not be agreed, the threat of cancellation hangs over them.

The projects in question are Courseulles-sur-Mer, St-Nazaire and Fécamp, which were awarded to a consortium led by EDF Energies Nouvelles; and St-Brieuc, awarded to Iberdrola and Eole RES. These contracts were awarded in 2012.

Other contracts potentially affected are Dieppe-Le Tréport and Les Iles d'Yeu et Noirmoutier, both awarded to a consortium led by Engie in 2014.

All the projects were given tariffs of circa €200/MWh (US$240/MWh), including grid connection, which far exceeds current norms given the fast pace of cost reduction in the offshore wind industry and zero-subsidy bids for some, if not all, offshore windfarms.

France Energie Eolienne head of industry, offshore, Matthieu Monnier told OWJ that the government is expected to seek “significant reductions” in the tariffs awarded to the projects.

Combined, the tenders awarded contracts for 2.9 GW of capacity, but only the projects in the first 1.9 GW tender have secured all the necessary permits, and not a single project from these first two tenders has reached financial close.

Some of the companies involved have indicated a willingness to work with the government where possible, and in April Engie chief executive Isabelle Kocher said she believed there was “room for manoeuvre.”

However, as Mr Monnier explained, unlike other countries where new, larger turbines could be proposed that could reduce the cost of the projects should the subsidies be cut, the French system would prevent this unless the permitting process and environmental assessments were restarted, significantly delaying already late-running projects.

Mr Monnier said concerns have also been expressed about the industrial implications of halting projects, significant investment having been made in facilities to build turbines and blades for French projects.

Responding to the plan to renegotiate the subsidies awarded to the projects, the Syndicat des énergies renouvelables (SER, the French renewable energy association), French Maritime Cluster (CMF), which represents maritime industries, and the naval industrial federation GICAN called on the government to avoid “destroying” the offshore wind sector in the country.

In a statement issued when the French Government tabled a draft amendment in the senate that would have retroactively revoked support for the projects, the SER said the government’s proposal was “disastrous” and “an unprecedented signal” for all forms of renewable energy. The SER said it was also a “challenge to the government’s previous commitments in this area.”

The amendment submitted in March proposed the renegotiation or possible cancellation of the tender awards. In response, the SER said having an ‘energy mix’ capable of meeting the objectives of the energy transition process would require the mobilisation of new capital and it was therefore essential to maintain a climate of trust for investors. “Investment security is an essential prerequisite for the implementation of the energy transition in our country,” said the SER.

It went on to say the companies in the SER would “rebel” against any decision to retroactively terminate projects duly given contracts after a call for tenders.

“The proposal submitted by the government covers renewable energy production facilities at sea and may tomorrow affect all renewable sectors,” said the SER. “If this provision were adopted, it would set a precedent and challenge all investments already made and the jobs associated with them.”

The SER said that, in its view, the projects targeted by the amendment presented by the government were “fundamental for the realisation of the French marine energy sector” and involve French and international investment that would generate jobs and industrial activity in France.

SER president Jean-Louis Ball said renegotiating the tenders would destroy investors’ confidence in the French market. “We call on the government to withdraw its proposal to ensure that France remains a country where the decision to invest cannot be challenged overnight,” he said. The amendment was, in fact, defeated, but the government is pressing ahead with renegotiation nevertheless.

MAKE offshore analyst Søren Lassen told OWJ it was unclear how the renegotiation process might work out. “There are so many variables to consider,” he said.

Upcoming tenders for Round 3 and 4 could also influence the process, he suggested. Under Round 3, a tender process is under way for a 400-750 MW offshore windfarm off Dunkerque. Should bids for that project come in at very much lower levels than those for Rounds 1 and 2, the pressure to reduce subsidies for the projects awarded in the earlier rounds – or cancel some of them – could be irresistible.

He concurred with Mr Monnier that although new, larger turbines are now available that could reduce the cost of the projects, they cannot be used without triggering a completely new approval process, which would set the already long-delayed projects back even further. “A lot will depend on how much leeway there is in the renegotiation process,” he said.

Ironically, the decision to renegotiate the tenders came only a matter of weeks after the French Government announced details of measures to simplify the offshore wind project approval process to reduce development times.

Speaking at the end of last year, France’s energy and environment minister, Nicholas Hulot, reiterated his belief that marine renewable energy – which he described as “a real asset for our country” – could not continue to play a fundamental role in national energy strategy unless the rate at which projects were developed was speeded up. “The objectives of energy transition cannot be met if projects take 10-15 years to develop after a call for tenders,” he said.

As highlighted by OWJ in January 2018, years have elapsed since France announced the winners of its first and second commercial-scale offshore wind tenders but only one project has secured all of the necessary permits and not a single project from these first two tenders has reached financial close. Courseulles-sur-Mer is said to be close to FID but in the current climate that decision will almost certainly be delayed.

This slow progress in bringing offshore wind online is blamed on the country’s glacially-slow development process. So slow is the approval process that Bloomberg New Energy Finance told OWJ it does not expect to see any conventional projects commissioned before 2021, a date that now seems optimistic.

The cumbersome nature of the development and permitting process was acknowledged by president Emmanuel Macron’s administration late last year and steps have been taken to reduce development times to less than seven years from more than 10 currently. The government has also acted to streamline the appeal process for offshore wind projects and cut the length of court cases when appeals are heard.

As criticism of the level of subsidies awarded in Round 1 and 2 grew, in mid-January, a 10-point plan was set out by the French Government with the aim of doubling wind power capacity by 2023. Its aim was to simplify administrative procedures and accelerate the development of wind power projects, the goal being to speed up deployment of wind power capacity and thus achieve the high end of France's onshore wind 2023 target, or 26 GW.

Unfortunately, the review of the 2012 and 2014 tenders and the level of support they received could undermine confidence in the sector and adversely affect jobs and industrial commitments, as industry bodies such as Mr Monnier and colleagues at France Energie Eolienne has been quick to point out.

As it noted, above all, the industry needs forward visibility and stability – regulatory and economic – especially where long-term investments are concerned. It is that very visibility that has led to a significant reduction in the cost of offshore wind energy. In the past, uncertainty has been the enemy of investment and has led to cost increases.

Ironically, one of the reasons that the French Government espoused for supporting offshore wind in the first place was the chance to create a powerful new industrial sector with a significant commitment to production in France and to job creation.

It is clear that renegotiating – or pulling the plug on – projects could cause untold harm to a sector in which French companies and the French Government have invested heavily and in which large-scale export opportunities are fast opening.

As projects for bottom-fixed offshore windfarms are reviewed by the French Government, the prospects for what was once seen as the next ‘wave’ of offshore wind in French waters – floating offshore wind – seem much more positive and floaters could, potentially, enter service before the early bottom-fixed projects.

As Mr Monnier explained, a pathway to commercial deployment of floating offshore wind energy has been established via contracts for four pilot projects, each of 24 MW. €330M in financial support and a feed-in tariff for 20 years will see the projects commissioned by 2020-2021. Three of the pilot projects are to be installed in the Mediterranean and one offshore Brittany.

France’s first floating windfarm will be Floatgen, a European project that makes use of much French technology. The Floatgen demonstrator left the quayside at St Nazaire on 30 April 2018. It uses a concrete floating foundation developed by Ideol and a 2 MW Vestas turbine.

Preparations are already being made for the first commercial tender for a floating offshore windfarm in French waters after prime minister Édouard Philippe and Mr Hulot announced the launch of preliminary technical investigations for sites for the floating wind facilities. Public consultations to define new zones for offshore wind – bottom-fixed and floating – are ongoing as is identification of zones for the first tender for a floating facility.

Mr Monnier explained this first commercial-scale floating wind project would benefit from the introduction of a new, simplified framework that will see the authorities in France adopt an ‘envelope’ approach and an envelope permit of the type now widely used elsewhere in Europe.

This will enable developers to analyse the environmental impact of a project in a manner that will reduce or eliminate the need for subsequent environmental and technical reviews, without sacrificing appropriate environmental safeguards. This approach would take place after preliminary investigations of proposed sites, including factors such as wind speed and geotechnical conditions. Grid connection and operational risk associated with it would be assumed by the French transmission system operator, RTE.

The primary advantage of the envelope approach is that it provides flexibility in design options where details of a whole project are not available when an application is submitted, while ensuring the impact of a development is fully assessed during an environmental impact assessment. This means that should the need – or opportunity – arise to take advantage of new technology, such as new-generation larger turbines, they can be accommodated without requiring another environmental assessment to take place.

Unfortunately for the developers involved in Rounds 1 and 2, the envelope approach was not used, and they cannot respond to a reduction in the subsidy they receive by using new, larger turbines or other technical innovations without starting all over again with the approvals process.